Introduction to the main ideas

Dangerous Machines – phasing out the for profit corporation

Some of the biggest organisations in the world, originally designed by humans to fulfill their needs, are now beginning to turn on their creators. This article aims to explain why for profit corporations need to be consigned to the past if humanity is to have a future.

For profit corporations are everywhere. They provide our food and clothing, they look after our money, and they organise our working days. There may be as many as 200 million of them around the world – from small businesses to giant multinationals. And in most cases, they exist without a moral purpose.

They may have been useful in the past, but many corporations – and financial corporations particularly – have grown so big as to have slipped the shackles of meaningful regulation. It has long been apparent that, unregulated, they can be dangerous for workers, consumers and communities. It is now becoming clear that they also pose a danger to our democracies and to the biosphere of the planet itself. The three boxes below contain a few examples – mostly very familiar – of just some of the ways in which this danger is manifest.

Indifference to human life

Observable behaviours

Examples

Lobbying against climate change regulation.

Carbon companies threaten the health of the biosphere at COP15 in 2009.1

Pushing for international treaties like TTIP with corporate courts able to overturn ‘local’ moral rules.7

Bribery and corruption

Corporate complicity in funds stolen by dictators such as Suharto in Indonsia and Mobutu in Zaire.8

Media control

Controlling the areas of debate to support the business agenda (e.g Murdoch and News International).9

Revolving doors (appointments)

Rewarding friendly politicians with lucrative directorships.10

Indifference to other forms of life

Observable behaviours

Examples

Habitat destruction

Felling of complex forest ecosystems to be replaced with profitable monoculture palm plantations in Indonesia.11

Factory farming

Sentient creatures become units of production permanently housed in production lines.12

Species extinction

Industrial fishing fleets decimate fish stocks (e.g North Sea Cod).13

Toxics and pesticides

Systematic destruction of micro-organisms.14

A crazy ideal?

Surely it is Quixotic, or unrealistic, or just plain crazy to propose that the world’s dominant institution needs to be phased out?

The first answer is that the problems humans face are currently very severe. We have record levels of species extinctions, growing extremes of inequality and failing democratic systems. We appear to have a whole-system problem that requires a whole system solution. And not many other practical whole-system solutions are on the table.

The second answer is that it may not be as complicated as you think. For example, the recent rapid growth of B-corporations shows how it is possible for for profit corporations to ‘convert’ into something different if they choose.15 The same people have the same jobs making the same things, but the purpose that the management must consider quarterly is broader, and must include social and environmental impacts.

‘Corporate form’ is already set to become the next big issue in the corporate social responsibility debate. The ‘dangerous machines’ project is designed to try to take the discussion even further. Companies that choose to trade using the for profit form must learn how to publicly defend their choice, and to explain why a conversion to a less dangerous model is not being considered. For those that do not ‘choose’ to convert, civil society purchasers, social economy solidarity and government ‘incentives’ all have proven track records at driving significant change in other business areas.

“We must dramatically change the publicly traded, limited liability global corporation, just as previous generations set out to eliminate or control the monarchy.”

John Cavanagh and Jerry Mander.16

Other corporate forms

There are many not-for-profit corporate forms: mutuals, social enterprises, charities and state-ownership are just four. For each there is an example of a large successful organisation operating with a functional efficiency and access to capital at least as good as one you will observe inside a for profit machine. The BBC, Coop supermarkets in Switzerland, Liverpool University, the WordPress Foundation and Deutsche Bahn are just five examples of many thousands of high-performing not-for-profit corporate forms we could choose from. With such examples, it begins to be possible to conceive of a world run entirely by organisations of this type.

The B-Corporation movement, which emerged in the USA and is now spreading around the world, is particularly interesting in this regard in that it has introduced the idea that you can convert your for-profit company into a not-just-for-profit ‘community benefit corporation’. The people, the offices, the assets all remain the same – but the core purpose changes – from an ordinary company to one which must formally consider its social and environmental impacts too. Around 30 US states, and now Italy too, have changed company registration laws to accommodate this new movement.17 Legal changes have apparently also been under consideration in the UK according to the government’s recent ‘Mission Led Business’ review.18

The various not for profit forms we have available may not be perfect yet. And the not-just-for profit model offered by B-Corporations may not be a step far enough. But all of these can be modified and improved or added to. The important thing is to begin this discussion now. In many people’s eyes the problems we face are urgent. What are the best forms to convert everything into? Where is it important to begin the pressure?

Increasingly self-interested beviour

Being alarmed by the behaviour of for-profit corporations is not a contemporary phenomenon nor one exclusively expressed by political radicals. Teddy Roosevelt described corporations as

“indispensable instruments of our modern civilisation, but I believe they should be so supervised and so regulated that they shall act for the interests of the community as a whole.”19

More recently, arguing that for-profit corporations, particularly giant multinationals, are a danger to human societies has become more common. David Korten’s ‘When Corporations Rule the World’ and Joel Bakan’s ‘The Corporation’ and were both key texts and best-sellers in this space in 1996 and 2003 respectively.

However, the levels of self-interest which corporations have been willing to display since then has become, if anything, more extreme. These developments have confirmed just how dangerous to life corporations have become and how urgent it is to attempt to reign them in. Perhaps the core example of taking a step to far in this respect is the increasingly well-mapped role of corporate lobbying to prevent effective regulation of carbon emissions. Corporations, with no physical form, may not need a stable climate – but humans surely do.

A second ‘step too far’ is the increasingly disdainful approach of corporations to tax regimes which collect revenue to support the human lives around them. Corporations may not need people beyond a slimmed-down workforce and a viable number of customers. But to define ‘people not useful to corporations’ as no longer deserving of any support displays a machine-like lack of compassion in its focus on short-term financial gain.

Furthermore, the direction of travel demonstrated by these behaviours does not bode well for trying to maintain some idea of human equality in the future. The next generation of robotics and computerisation on the horizon looks set to take ever more jobs from an ‘inefficient’ human workforce.20 And with the wealth this creates benefiting an ever-smaller pool of owners, the rising inequalities we are seeing in the West now may be nothing compared to what is to come.

Increasing failures of regulation

The commonest response to this danger posed by corporations is that we just need to regulate them better. However the globalisation of markets and companies, and the lack of a proper international legal structure, has led to a weakening of nation states, and it is important to acknowledge how difficult in practice regulation is appearing to be by both national and regional governments.21

As we know, problems around global regulation have led to a rise in civil society collective actions like boycotts, shareholder actions and corporate campaigns. This has led to a growth of a whole range of civil or private regulatory initiatives like Fairtrade and Forest Stewardship labeling.

However, competitive pressures are leading profit maximising companies to constantly be looking for ways around both government and civil regulation. This ‘tendency for ethics erosion’ sees corporations in their logical pursuit of profit act relentlessly or in a machine-like way to seek to bypass, ignore, and undermine attempts by both governments and civil society to curtail their excesses.

Finally, it is important to note that one of the reasons that regulation is failing to reign in corporations is that corporations themselves are everywhere attempting to stop such regulation whenever their financial interests are threatened. A whole langauge has emerged to try to track and understand this, from the notion of ‘corporate capture’ of whole government departments,22 to the idea of ‘regulatory arbitrage’ where companies calculate the cost of taking steps to avoid certain laws instead of obeying them.23

We are therefore in a catch 22 situation. Large corporations are damaging human health and well-being. But we cannot effectively fix this because corporations have also damaged the regulatory systems designed to stop this occurring.

Corporations and capitalism

Many of the criticisms directed here at corporations – such as unsustainable behaviours and lacking in compassion – are more commonly directed at capitalism itself. [ref] And much of the reflection on solutions to the global problems faced by humanity focuses on reforming or replacing capitalism with something else. The trouble has been in articulating alternative systems that haven’t already been tried and found wanting (centrally planned economies) or that somehow don’t seem enough (CSR or mixed economies).

Capitalism is a self-organising system operating to a few basic rules and describing alternatives can be difficult. The proposal here is to replace for-profit corporations with other institutions which must – according to their constitutions have regard to human rights, environmental protection and other external impacts. To some extent they would continue to self organise within ‘markets’ with regulatory control over the usual key issues.

A thousand writers have analysed the problem. As many have identified the solution – we need economies that value social and environmental justice as much as money. What we need is a route to get there, The political system appears stuck. It is captured by the very interests we are seeking to de-throne. Phasing out the for profit corporation is certainly an promising route. We can’t see the whole of the path. But it seems to be heading in the right direction.

Conclusions and Taking it forward

We can no longer risk tolerating the existence of giant corporations which do not in their constitutions have a specific requirement not to undermine human rights or upset eco-systems. We need to go into the very heart of corporate purpose and change its DNA. ‘Upgrading the corporate software’ or ‘reprogamming corporate DNA’ may not only help rid societies of the dangerous machines in their midst, but it may also help combat the urgent problem of how markets can exist with social and environmental sustainability.

Does phasing out the for profit corporation provide the critical changes to the core progamming of capitalism to create the future we need? And how might we get there? These broader questions are just a few being considered this year in the dangerous machines project and, other than a few brief notes, are beyond the scope of this short extract.

Some governments will be supportive and will introduce tax advantages for not-for-profit forms which will permit them to compete in markets with for-profit companies. This is already happening in some countries.24 In other cases, ‘millenial entrepreneurs’ will simply grow bored of the narrowness of the solely for-profit form and chose social enterprise models as the way forward.25

Most of all though we will need consumers and companies and local authorities and buyers of all types to chose not-for-profit producers when they can. This kind of movement is already well under way in many places.26 Looking for a ‘star’ in the Company Ethos column in Ethical Consumer’s Product Guides is just one of many ways of finding not solely for profit producers. They are everywhere.

This is an extract from a longer work which is being prepared for publication later in 2017.

There are necessarily many huge generalisations in a discussion this wide-ranging. Some for profit companies are great. Some charities are terrible. People inside for profit corporations face moral dilemmas every day and do not always make the wrong choice. The longer work explores some of these nuances and explores the practical steps needed for a significant shift away from for-profits to take place.

24. The most obvious advantages are those created in many states for charities, but there are other examples such as the UK’s social investment tax relief.

25. The Deloitte Millennials Report in 2013 showed that young people believe that the number one purpose of business is to benefit society, and the 2014 report showed that fifty per cent want to work for a business with ethical practices.

When the modern corporation acquires power over markets, power in the community, power over the state and power over belief, it is a political instrument, different in degree but not in kind from the state itself. To hold otherwise — to deny the political character of the modern corporation — is not merely to avoid the reality. It is to disguise the reality.